House passes bill boosting refineries

Close vote eases new construction, expansion

StephanieI. Cohen

WASHINGTON (MarketWatch) - House Republicans eked out a victory Friday on a bill that would make it easier to build a new oil refinery or expand on existing ones.

The House passed the Republican-authored Gasoline for America's Security Act of 2005 in a vote of 212-210, largely along party lines, after holding a five-minute vote open for roughly 45 minutes.

The legislation crafted in the wake of two devastating hurricanes that crippled the U.S. energy sector, seeks to entice the oil industry to boost refining capacity by removing permitting hurdles and providing financial incentives.

The bill is also a response to public outcries over higher prices at the gas pump. The U.S. average retail price for regular gasoline increased by 12.5 cents to $2.928 cents a gallon for the week ending Sept. 30, nearly $1 higher than prices a year ago.

The new legislation comes just months after President Bush signed another energy bill into law -- billed as comprehensive energy legislation -- which took years to move through Congress.

The prospects for similar legislation in the Senate are unclear. Senate lawmakers are working on a number of energy-related bills that address natural gas supplies, oil and natural gas exploration, and environmental regulations.

Rep. Joe Barton, R-Texas, the author of the legislation, said he hopes it will prompt industry to announce plans for a new refinery or a major expansion of an existing site within one year and bring an additional five million barrels of refining capacity online in the next five or six years.

"The first premise of the [bill] is to make it possible for those companies that wish to expand existing refineries, reopen old refineries, or build new refineries to get certainty of a decision about the permitting process," said Barton, the chairman of the House Energy and Commerce Committee.

But House Minority Leader Nancy Pelosi, D-Calif., described the bill as a giveaway to profitable oil companies and said it supports "greed over need."

Hurricanes Katrina and Rita, which battered refineries along the Gulf of Mexico, have focused attention on what Republicans and Democrats agree is a critical bottleneck in the U.S. supply chain -- refining capacity. The parties disagree over the solution.

"Our refinery capacity has simply not kept pace with our demand for the petroleum product," said Barton.

The last major refinery built from scratch in the U.S. was Marathon's
MRO, -0.71%
245,000-barrels-per-day Garyville, La., facility completed in 1976. See full story.

To make up for this demand-supply gap, the U.S. is receiving a record level of refined petroleum products, including gasoline, from abroad.

Streamlining the process

The bill would expedite the permitting process for refineries by creating a fixed timeline for approving such projects; allow the president to select a handful of federal sites, including closed military bases, to host new refineries; and let the federal government contract for a refinery to meet the military's fuel needs.

If industry wants to fast-track a refinery on a federal site, the governor of the state where the site is located would have to first file a request. Barton sees Oklahoma, Texas, and Wyoming as the states most likely to be receptive to a new refinery.

"There's been no substantial evidence presented to conclude that the reason for this shortage" is thin refinery capacity, said Rep. Rick Boucher, D-Va., an opponent of the bill.

"The refiners are making more money by refining less oil," Boucher added.

So far no companies have expressed interest in building a facility on any particular federal sites.

The legislation would require the federal government to cut the number of specialty blended fuels that refineries produce to help states meet environmental standards from several dozen to six. The Federal Trade Commission would also be authorized to set a national definition for price gouging, launch an investigation into charges of inflated pricing at the pump, and levy fines against gougers.

Critics of the legislation are skeptical it will prompt a rash of refinery expansions arguing that industry benefits from the tight supply-demand situation and higher prices consumers pay for petroleum products. Opponents also maintain that Republicans are using the hurricanes as a vehicle to rewrite environmental rules that refiners and utilities have long opposed.

Democrats offered a substitute to the Republican-crafted bill that was defeated.

Rep. Henry Waxman, D-Calif., said the Republican bill would "exploit Katrina for a special interest bonanza."

Environmental groups have banded together to try to defeat the bill, arguing that consumers will get no relief from high energy prices but face worse pollution if the legislation is passed.

"Our goal is to defeat the bill," said Anna Aurilio, legislative director of U.S. PIRG, an environmental advocacy and lobbying group.

"This is not a situation where oil companies need regulatory relief in order to stave off ruin," said David Hamilton, director of the Sierra Club's global warming and energy program, adding "oil companies are not hurricane victims."

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